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The World is Turning Japanese [Chart]

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The World is Turning Japanese [Chart]

The World is Turning Japanese [Chart]

Negative rates, Kuroda’s “Peter Pan” analogy, and gold’s surge

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

Nearly a year ago, Bank of Japan governor Haruhiko Kuroda described the unlikely inspiration behind Japan’s unprecedented monetary stimulus: Peter Pan.

I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it’. Yes, what we need is a positive attitude and conviction. Indeed, each time central banks have been confronted with a wide range of problems, they have overcome the problems by conceiving new solutions.

Kuroda’s optimism is desperately needed in a country that has now been officially “leapfrogged” by the four Asian Tigers in terms of Real GDP per capita (PPP). With over a decade of experimentation in extreme monetary policy under their belts, Japan has very little to show for it.

It would be fine if this story of economic malaise could be confined as a global outlier. However, recent circumstances have prodded the world’s central bankers to finally buy into the tale of Peter Pan.

The world is turning Japanese.

So Much Negativity

Negative interest rates were an economic pipe dream many decades ago, but the idea of “charging” interest to hold money is now becoming mainstream. Conventional wisdom was that depositors would just hoard cash rather than depositing at a cost, but now the people running central banks are beginning to believe that this fear is misplaced. Especially as society becomes more cashless, the inconvenience of withdrawing money to save a few bucks isn’t worth it.

Central banks in Switzerland, Sweden, Denmark, and Japan now all have negative interest rates. The ECB has also held their Deposit Facility Rate for overnight deposits in the negative since June 2014.

In recent weeks, the interest in this economic experiment has risen significantly. Sweden cut their rates deeper into negative territory, signalling to the rest of the world that there is nothing to fear. Meanwhile, both the Federal Reserve and the Bank of Canada have openly pondered the possibility of NIRP in their respective jurisdictions.

Misplaced Conviction?

Not everyone agrees with the central bankers in seeing the Peter Pan analogy to be a fitting representation.

We’d liken it more to a squad of musketeers running out of gunpowder, and turning desperately to their bayonets to win a decision. It doesn’t matter how much conviction and optimism the crew has in their bayonet skills – at the end of the day, it’s only going to add a few extra minutes of life into the inevitable battle against a much more powerful deflationary force.

In other words, “hope” isn’t a strategy that central bankers can use to any efficacy, and wishful thinking can only go so far. The market seems to agree, and it’s part of the reason that stocks have sold off this year. Even the “safe haven” gold trade is back, after being absent for much of the previous year.

Many critique assets such as gold, which is up 15% year-to-date, because it does not pay a dividend or interest.

This may be true, but at least gold does not “charge” interest, as bankers across the world are beginning to ponder.

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Central Banks

The History of Interest Rates Over 670 Years

Interest rates sit near generational lows — is this the new normal, or has it been the trend all along? We show a history of interest rates in this graphic.

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The History of Interest Rates Over 670 Years

Today, we live in a low-interest-rate environment, where the cost of borrowing for governments and institutions is lower than the historical average. It is easy to see that interest rates are at generational lows, but did you know that they are also at 670-year lows?

This week’s chart outlines the interest rates attached to loans dating back to the 1350s. Take a look at the diminishing history of the cost of debt—money has never been cheaper for governments to borrow than it is today.

The Birth of an Investing Class

Trade brought many good ideas to Europe, while helping spur the Renaissance and the development of the money economy.

Key European ports and trading nations, such as the Republic of Genoa or the Netherlands during the Renaissance period, help provide a good indication of the cost of borrowing in the early history of interest rates.

The Republic of Genoa: 4-5 year Lending Rate

Genoa became a junior associate of the Spanish Empire, with Genovese bankers financing many of the Spanish crown’s foreign endeavors.

Genovese bankers provided the Spanish royal family with credit and regular income. The Spanish crown also converted unreliable shipments of New World silver into capital for further ventures through bankers in Genoa.

Dutch Perpetual Bonds

A perpetual bond is a bond with no maturity date. Investors can treat this type of bond as an equity, not as debt. Issuers pay a coupon on perpetual bonds forever, and do not have to redeem the principal—much like the dividend from a blue-chip company.

By 1640, there was so much confidence in Holland’s public debt, that it made the refinancing of outstanding debt with a much lower interest rate of 5% possible.

Dutch provincial and municipal borrowers issued three types of debt:

  1. Promissory notes (Obligatiën): Short-term debt, in the form of bearer bonds, that was readily negotiable
  2. Redeemable bonds (Losrenten): Paid an annual interest to the holder, whose name appeared in a public-debt ledger until the loan was paid off
  3. Life annuities (Lijfrenten): Paid interest during the life of the buyer, where death cancels the principal

Unlike other countries where private bankers issued public debt, Holland dealt directly with prospective bondholders. They issued many bonds of small coupons that attracted small savers, like craftsmen and often women.

Rule Britannia: British Consols

In 1752, the British government converted all its outstanding debt into one bond, the Consolidated 3.5% Annuities, in order to reduce the interest rate it paid. Five years later, the annual interest rate on the stock dropped to 3%, adjusting the stock as Consolidated 3% Annuities.

The coupon rate remained at 3% until 1888, when the finance minister converted the Consolidated 3% Annuities, along with Reduced 3% Annuities (1752) and New 3% Annuities (1855), into a new bond─the 2.75% Consolidated Stock. The interest rate was further reduced to 2.5% in 1903.

Interest rates briefly went back up in 1927 when Winston Churchill issued a new government stock, the 4% Consols, as a partial refinancing of WWI war bonds.

American Ascendancy: The U.S. Treasury Notes

The United States Congress passed an act in 1870 authorizing three separate consol issues with redemption privileges after 10, 15, and 30 years. This was the beginning of what became known as Treasury Bills, the modern benchmark for interest rates.

The Great Inflation of the 1970s

In the 1970s, the global stock market was a mess. Over an 18-month period, the market lost 40% of its value. For close to a decade, few people wanted to invest in public markets. Economic growth was weak, resulting in double-digit unemployment rates.

The low interest policies of the Federal Reserve in the early ‘70s encouraged full employment, but also caused high inflation. Under new leadership, the central bank would later reverse its policies, raising interest rates to 20% in an effort to reset capitalism and encourage investment.

Looking Forward: Cheap Money

Since then, interest rates set by government debt have been rapidly declining, while the global economy has rapidly expanded. Further, financial crises have driven interest rates to just above zero in order to spur spending and investment.

It is clear that the arc of lending bends towards ever-decreasing interest rates, but how low can they go?

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Central Banks

$69 Trillion of World Debt in One Infographic

What share of government world debt does each country owe? See it all broken down in this stunning visualization.

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$69 Trillion of World Debt in One Infographic

Two decades ago, total government debt was estimated to sit at $20 trillion.

Since then, according to the latest figures by the IMF, the number has ballooned to $69.3 trillion with a debt to GDP ratio of 82% — the highest totals in human history.

Which countries owe the most money, and how do these figures compare?

The Regional Breakdown

Let’s start by looking at the continental level, to get an idea of how world debt is divided from a geographical perspective:

RegionDebt to GDPGross Debt (Millions of USD)% of Total World Debt
World81.8%$69,298100.0%
Asia and Pacific79.8%$24,12034.8%
North America100.4%$23,71034.2%
Europe74.2%$16,22523.4%
South America75.0%$2,6993.9%
Africa56.9%$1,3131.9%
Other37.1%$1,2311.8%

In absolute terms, over 90% of global debt is concentrated in North America, Asia Pacific, and Europe — meanwhile, regions like Africa, South America, and other account for less than 10%.

This is not surprising, since advanced economies hold most of the world’s debt (about 75.4%), while emerging or developing economies hold the rest.

World Debt by Country

Now let’s look at individual countries, according to data released by the IMF in October 2019.

It’s worth mentioning that the following numbers are representative of 2018 data, and that for a tiny subset of countries (i.e. Syria) we used the latest available numbers as an estimate.

RankCountryDebt to GDPGross Debt ($B)% of World Total
#1🇺🇸 United States104.3%$21,46531.0%
#2🇯🇵 Japan237.1%$11,78817.0%
#3🇨🇳 China, People's Republic of50.6%$6,7649.8%
#4🇮🇹 Italy132.2%$2,7444.0%
#5🇫🇷 France98.4%$2,7363.9%
#6🇬🇧 United Kingdom86.8%$2,4553.5%
#7🇩🇪 Germany61.7%$2,4383.5%
#8🇮🇳 India68.1%$1,8512.7%
#9🇧🇷 Brazil87.9%$1,6422.4%
#10🇨🇦 Canada89.9%$1,5402.2%
#11🇪🇸 Spain97.1%$1,3862.0%
#12🇲🇽 Mexico53.6%$6550.9%
#13🇰🇷 Korea, Republic of37.9%$6520.9%
#14🇦🇺 Australia41.4%$5880.8%
#15🇧🇪 Belgium102.0%$5430.8%
#16Netherlands52.4%$4790.7%
#17Argentina86.1%$4470.6%
#18Singapore113.6%$4140.6%
#19Greece184.9%$4040.6%
#20Austria73.8%$3370.5%
#21Indonesia30.1%$3080.4%
#22Portugal120.1%$2890.4%
#23Poland48.9%$2860.4%
#24Switzerland40.5%$2860.4%
#25Ireland63.7%$2440.4%
#26Russian Federation14.6%$2420.3%
#27Turkey30.2%$2330.3%
#28Egypt92.7%$2310.3%
#29Pakistan71.7%$2260.3%
#30Israel60.8%$2250.3%
#31Sweden38.5%$2140.3%
#32Thailand42.1%$2130.3%
#33South Africa56.7%$2090.3%
#34Taiwan Province of China35.1%$2070.3%
#35Malaysia55.6%$1990.3%
#36Venezuela182.4%$1800.3%
#37Norway40.0%$1740.3%
#38Colombia52.2%$1730.2%
#39Finland59.3%$1630.2%
#40Saudi Arabia19.0%$1490.2%
#41Iran32.2%$1440.2%
#42Vietnam55.6%$1340.2%
#43Philippines38.9%$1290.2%
#44Denmark34.3%$1210.2%
#45Hungary70.8%$1140.2%
#46Iraq49.3%$1110.2%
#47Nigeria27.3%$1090.2%
#48Bangladesh34.0%$98.10.14%
#49Angola89.0%$94.30.14%
#50Qatar48.6%$93.00.13%
#51Romania36.7%$87.90.13%
#52Lebanon151.0%$85.10.12%
#53Czech Republic32.6%$79.90.12%
#54United Arab Emirates19.1%$79.10.11%
#55Ukraine60.2%$78.80.11%
#56Morocco65.0%$77.00.11%
#57Chile25.6%$76.30.11%
#58Sri Lanka83.3%$74.10.11%
#59Sudan212.1%$72.70.10%
#60Algeria38.3%$66.50.10%
#61New Zealand29.8%$60.50.09%
#62Peru26.1%$58.80.08%
#63Puerto Rico55.5%$56.10.08%
#64Kenya60.1%$52.80.08%
#65Slovak Republic48.9%$52.10.08%
#66Ecuador45.8%$49.60.07%
#67Ethiopia61.0%$49.00.07%
#68Croatia74.6%$45.40.07%
#69Dominican Republic50.5%$43.20.06%
#70Oman53.4%$42.30.06%
#71Jordan94.4%$39.90.06%
#72Ghana59.3%$38.90.06%
#73Slovenia70.4%$38.10.05%
#74Uruguay63.5%$37.90.05%
#75Kazakhstan21.0%$36.30.05%
#76Bahrain94.7%$35.70.05%
#77Costa Rica53.5%$32.30.05%
#78Tunisia77.0%$30.70.04%
#79Belarus47.8%$28.50.04%
#80Serbia54.5%$27.50.04%
#81Myanmar38.2%$26.20.04%
#82Panama39.5%$25.70.04%
#83Cyprus102.5%$25.10.04%
#84Côte d'Ivoire53.2%$22.90.03%
#85Bolivia53.8%$21.80.03%
#86Tanzania37.3%$21.20.03%
#87Zambia78.1%$20.90.03%
#88Kuwait14.7%$20.80.03%
#89Guatemala24.7%$19.40.03%
#90Lithuania34.2%$18.20.03%
#91Syria30.0%$18.00.03%
#92Yemen64.8%$17.90.03%
#93El Salvador67.1%$17.50.03%
#94Cameroon39.1%$15.10.02%
#95Luxembourg21.4%$14.90.02%
#96Jamaica94.4%$14.60.02%
#97Senegal61.6%$14.50.02%
#98Mozambique99.8%$14.40.02%
#99Bulgaria20.4%$13.30.02%
#100Latvia35.9%$12.50.02%
#101Turkmenistan29.1%$11.90.02%
#102Uganda41.4%$11.60.02%
#103Albania69.9%$10.50.02%
#104Uzbekistan20.6%$10.40.02%
#105Lao P.D.R.57.2%$10.40.01%
#106Gabon60.7%$10.20.01%
#107Congo, Republic of87.8%$10.20.01%
#108Trinidad and Tobago45.1%$10.20.01%
#109Iceland37.6%$9.80.01%
#110Honduras40.2%$9.60.01%
#111Mauritius66.2%$9.40.01%
#112Paraguay21.5%$9.00.01%
#113Azerbaijan18.8%$8.80.01%
#114Nepal30.2%$8.80.01%
#115Papua New Guinea35.5%$8.20.01%
#116Bahamas, The63.3%$7.90.01%
#117Zimbabwe37.1%$7.80.01%
#118Georgia44.9%$7.30.01%
#119Congo, Dem. Rep. of the15.3%$7.20.01%
#120Cambodia28.6%$7.00.01%
#121Bosnia and Herzegovina34.3%$6.90.01%
#122Namibia45.8%$6.60.01%
#123Malta45.2%$6.60.01%
#124Mali37.3%$6.40.01%
#125Barbados125.7%$6.40.01%
#126Armenia51.3%$6.40.01%
#127Burkina Faso42.9%$6.10.01%
#128Equatorial Guinea43.3%$5.90.01%
#129Benin41.0%$5.90.01%
#130Madagascar45.7%$5.50.01%
#131Chad48.3%$5.30.01%
#132North Macedonia40.5%$5.10.01%
#133Niger53.8%$5.00.01%
#134Nicaragua37.2%$4.90.01%
#135Guinea38.2%$4.60.01%
#136Kyrgyz Republic56.0%$4.50.01%
#137Mauritania82.9%$4.30.01%
#138Malawi62.9%$4.30.01%
#139Togo76.2%$4.10.01%
#140Montenegro72.6%$4.00.01%
#141Rwanda40.7%$3.90.01%
#142Maldives68.0%$3.60.01%
#143Tajikistan47.9%$3.60.01%
#144Eritrea174.3%$3.50.01%
#145Moldova29.7%$3.40.00%
#146Haiti33.3%$3.20.00%
#147Bhutan102.4%$2.60.00%
#148Sierra Leone63.0%$2.60.00%
#149Estonia8.3%$2.60.00%
#150Fiji46.2%$2.60.00%
#151Suriname72.8%$2.50.00%
#152Cabo Verde124.5%$2.50.00%
#153Aruba84.5%$2.40.00%
#154Botswana12.1%$2.30.00%
#155Guyana52.9%$2.10.00%
#156Burundi58.4%$2.00.00%
#157South Sudan, Republic of42.2%$1.90.00%
#158Belize95.2%$1.80.00%
#159Eswatini35.2%$1.70.00%
#160Antigua and Barbuda89.5%$1.40.00%
#161Gambia, The86.6%$1.40.00%
#162Djibouti48.0%$1.40.00%
#163Afghanistan6.9%$1.40.00%
#164Kosovo17.0%$1.40.00%
#165Liberia39.9%$1.30.00%
#166San Marino77.9%$1.30.00%
#167Saint Lucia64.3%$1.20.00%
#168Lesotho44.5%$1.20.00%
#169Central African Republic49.9%$1.10.00%
#170Guinea-Bissau64.3%$0.90.00%
#171Seychelles56.9%$0.90.00%
#172Grenada63.5%$0.80.00%
#173Saint Vincent and the Grenadines74.5%$0.60.00%
#174Saint Kitts and Nevis60.5%$0.60.00%
#175Vanuatu51.4%$0.50.00%
#176Samoa50.3%$0.40.00%
#177Dominica74.1%$0.40.00%
#178Hong Kong SAR0.1%$0.40.00%
#179Brunei Darussalam2.6%$0.40.00%
#180São Tomé and Príncipe74.5%$0.30.00%
#181Comoros21.0%$0.20.00%
#182Timor-Leste6.1%$0.20.00%
#183Solomon Islands9.4%$0.10.00%
#184Micronesia, Fed. States of20.3%$0.10.00%
#185Nauru58.3%$0.10.00%
#186Marshall Islands25.2%$0.10.00%
#187Kiribati20.6%$0.00.00%
#188Tuvalu28.1%$0.00.00%

In absolute terms, the most indebted nation is the United States, which has a gross debt of $21.5 trillion according to the IMF as of 2018.

If you’re looking for a more precise figure for 2019, the U.S. government’s “Debt to the Penny” dataset puts the amount owing to exactly $23,015,089,744,090.63 as of November 12, 2019.

Of course, the U.S. is also the world’s largest economy in nominal terms, putting the debt to GDP ratio at 104.3%

Other stand outs from the list above include Japan, which has the highest debt to GDP ratio (237.1%), and China , which has increased government debt by almost $2 trillion in just the last two years. Meanwhile, the European economies of Italy and Belgium check the box as other large debtors with ratios topping 100% debt to GDP.

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